THE NEW YORKER, JULY 21, 2014
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the saying applies to her, but it's likely
that eventually she will feel pressure to
do so.
Yellen thinks of herself as more than
just an academic economist who has
mastered the data. She likes to talk
to people and dig into the details of
specific situations. The region covered
by the San Francisco Fed includes Las
Vegas and Phoenix, which in 2008 and
2009 were among the hardest-hit
places in the country. She used to grill
people she encountered, starting with
the security guards at the Fed's build-
ing, about their personal experiences.
Someone who worked for her in San
Francisco told me that when the gov-
ernment was conducting an auction of
a small failed bank, Yellen recalculated
the bids, from a number of stronger
banks, on a legal pad over a weekend.
In 2005 and 2006, she began to be
concerned that there was a dangerous
bubble in the housing markets. "I'm sorry
that light bulbs didn't go o in my head
a couple of years before they really did,
but there was no question," she told me. "I
was hearing stu that was scary. And I
wouldn't have seen it in the data." Her
business contacts told her that people
were trying to give them money to invest
without asking questions about what they
were going to do with it. The connection
she failed to make, however, was between
the housing bubble and a full-on eco-
nomic disaster: "I absolutely did not see it
as something that could take the financial
system down."
During the first few weeks after she
took o ce, somebody came up to
Yellen in an airport and said, "You look
just like Janet Yellen!" That comment
represents a step in a progression that
she is rapidly making, between being
unrecognized and being unmistakable.
Her ability to move in the real world,
and to use the information she collects
to hone her economic instincts, is rap-
idly narrowing. She told me, regretfully,
that she doesn't feel she can meet regu-
larly anymore with people in business
and finance who make a living predict-
ing what the Fed will do, because she
can't control what they might report
about the conversation.
The more constrained Yellen's world
becomes, the more her instinct will be
to return to the distilled essence of her-
self, the unrepentant Keynesian; the
pressure to demonstrate hawkish capa-
bilities comes from without, and the
Keynesian inclinations from within. "You
can't think about what is happening
in the economy constructively, from a
policy standpoint, unless you have some
theoretical paradigm in mind," she told
me. Alan Blinder told me that, in the
mid-nineteen-nineties, when he and Yel-
len were both Fed governors and felt
they might have momentarily pushed
Greenspan into a more dovish position,
one of them said to the other, "I think we
might have just saved five hundred thou-
sand jobs." He went on, "We felt pretty
good about that.... Now she can raise her
sights---one million jobs. Two million."
Yellen doubtless will keep stimulat-
ing the weak economy. "Imagine I've
got my hands on your shoulders and
I'm pushing you," she said. She held
out her palms and gave the air a firm
shove, to indicate how forcefully the
economy was holding people back. "In
the aftermath of the financial crisis, I
was pushing you so hard you couldn't
get to where you wanted to go. You
were dead in the water. And now I'm
pushing you a little less hard, so you're
able to make some forward move-
ment"---because the economy today
isn't quite so bad---"but I'm still push-
ing you. The headwinds are still there.
And so even when the headwinds have
diminished to the point where the
economy is finally back on track and
it's where we want it to be, it's still
going to require an unusually accom-
modative monetary policy."
This view isn't at all controversial
among Keynesian economists. In recent
months, Summers has written a series of
op-ed pieces calling for government
stimulus in much more aggressive terms
than Yellen uses, as if to disprove those
who believed that he'd have been more
hawkish than Yellen. But, because the
Fed's power has grown so significantly
since the financial crisis, it can no longer
simply embody a consensus among
economists and go unnoticed. The Fed,
not the Treasury or the White House or
Congress, is now the primary economic
policymaker in the United States, and
therefore the world. Everybody is watch-
ing. During the next year, Yellen has to
decide how quickly to wind down the
asset purchases that began five years ago;
when to begin notching interest rates
higher to forestall inflation; and how ag-
gressively to supervise the big financial
institutions so as to prevent another
wave of expensive and unpopular gov-
ernment bailouts if the markets go sour.
And she has to maintain her very public
commitment to improve the economy as
ordinary people, rather than market
players, experience it. Yellen is an econ-
omist. She has to become a politician.
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